The Belt and Road Initiative, previously known as the One Belt One Road Initiative, consists primarily of the Silk Road Economic Belt and the 21st-century Maritime Silk Road. The BRI is a grand and ambitious vision initiated by Chinese President Xi Jinping in 2013 aiming to improve regional cooperation and connectivity between Asia, Europe and Africa through a comprehensive network of ports, roads, railways and trading hubs – reviving ancient overland and maritime trade routes.
The BRI is building links between China and 65 other countries that account collectively for over 30 per cent of the global GDP, 62 per cent of the world’s population, and 75 per cent of known energy reserves. The United States has been sitting out of the BRI since the very beginning, criticizing its financing practices and warning of poor governance and disregard for international norms and standards.
On April 25-27, China hosted the 2nd Belt and Road Forum for International Cooperation in Beijing. Nearly 40 leaders from foreign countries and as many as 5,000 representatives from 150 countries took part in the forum. The US was absent. During the forum, Chinese President Xi Jinping promised to make the BRI clean, green and financially sustainable so as to address international criticism. Such promises are always easier to make than to fulfil.
To embrace the highest international standards, it may be wise for the BRI to comprehensively integrate the environmental, social and governance considerations into its business practices.
Chinese companies participating in the BRI, no matter state-owned or private, should meet their corporate social responsibility in their daily operational activities, with accountability, transparency, ethical behaviour, as well as respects for stakeholder interests, the rule of law, international norms of behaviour and human rights.
Those companies should adhere to the United Nations Global Compact’s 10 universal principles in the areas of human rights, labour, environment protection and anti-corruption, and can follow the guidance on social responsibility of the International Organization for Standardization.
Infrastructure development, the main BRI activity, is often associated with serious environmental impact. Infrastructure investments in developing countries can also involve corruption, pollution and human rights abuses
More importantly, the BRI’s key loan and investment vehicles, especially the Asian Infrastructure Investment Bank founded in January 2016 and the Silk Road Fund established in 2014, can wisely adopt the Socially Responsible Investing Strategy, which seeks to consider both financial return and ESG good.
Infrastructure development, the BRI’s main activity, is often associated with serious environmental impact. Moreover, infrastructure investments in developing countries can involve corruption, pollution and human rights abuses.
The 70-year-old World Bank has accumulated some good practices, such as refusing to fund controversial giant dam projects and blacklisting companies found guilty of collusion, corruption, fraud or coercion.
If the brand-new AIIB and SRF want to do better, they have to be more innovative and decisive in integrating ESG facts. They may follow the UN-backed Principles for Responsible Investment Initiative, which provides six basic principles for international institutional investors to fulfil fiduciary responsibilities. They may also refer the Equator Principles to manage the environmental and social risks of its lending and investment activities.
Broadly speaking, the AIIB, the SRF and their clients should comprehensively identify, assess and manage the ESG risks and impacts in a structured way, on an ongoing basis. Meanwhile, they should not provide project finance or project-related corporate loans to projects where the client will not, or is unable to, fulfil its ESG responsibilities.
In concrete terms, in the environmental aspect, pollution should be avoided or minimised, and the importance of climate change and biodiversity should be recognised; in the social aspect, universal human and labour rights should be respected, local communities’ interests should be protected, and the same requirements should be extended to suppliers or contractors; and in the governance aspect, any form of corruption should be prohibited, and ethical, democratic and transparent business culture should be advocated.
The BRI can be viewed as a touchstone to test China’s global leadership. Its temporary popularity is not the conclusion but just a start of its long and tough journey. The Chinese model of infrastructure development has been widely criticized for ignoring ESG impacts, although it has certain merits of being pragmatic, fast and cost-effective.
Therefore, the key challenge is showing the sceptical Western world that the China-led BRI will run professionally and responsibly. The ESG sustainability can be the key to its future success.
Sun Xi is a China-born independent commentary writer based in Singapore. Herta Monica Montesino Cucos is a sustainability advocate from the EU